CECL: Confronting Both Immediate Concerns and Extended Impacts
The new Financial Accounting Standards Board (FASB) standard for estimating expected credit losses means that banks must now calculate credit impairment using a more forward-looking approach. Replacing the incurred loss model with the current expected credit loss (CECL) model means that the “probable” threshold will be removed and banks will need to consider expected prepayments when estimating the expected life of a financial asset.
But the impact of the new standard extends far beyond accounting and financial reporting alone. In addition to changing the way they calculate the allowance for loan and lease losses (ALLL), financial institutions will need to consider making process changes in the way they collect data and either adapt their existing financial models and frameworks or develop new ones altogether.
Crowe Horwath LLP specialists have been closely engaged throughout the extended FASB deliberations that led to the new standard. By staying abreast of developments, Crowe can help banks address these new concerns and adapt to the new requirements.
Making the CECL Transition:
Important considerations as your bank moves towards CECL implementation.
Effective Dates and Expected Timing
For the CECL standard, the FASB had created a subgroup of public business entities (PBEs) that do not meet the definition of a “Securities and Exchange Commission (SEC) filer” contained in U.S. generally accepted accounting principles (GAAP), and the effective date for those entities is later than the date for the PBEs that are SEC filers.
The effective dates that were decided previously were extended by one year as follows:
- PBEs that meet the definition of an SEC filer: fiscal years beginning after Dec. 15, 2019 (instead of 2018), including interim periods within those fiscal years
- Other PBEs: fiscal years beginning after Dec. 15, 2020 (instead of 2019), and interim periods within those fiscal years
- All other entities: fiscal years beginning after Dec. 15, 2020 (instead of 2019), and interim periods within the fiscal years beginning after Dec. 15, 2021 (instead of 2020)
The FASB reaffirmed its decision to permit early adoption for all entities for fiscal years beginning after Dec. 15, 2018, including interim periods within those fiscal years, which is consistent with the effective date that originally was agreed upon for PBEs.
The final Accounting Standards Update (ASU) was published on June 16, 2016.
Five Areas That Will Be Affected